2009 Yokohama - Climate Change in the Asia-Pacific

Note: This policy statement was issued on the 31st of May of 2009 during the 23rd CACCI Conference in Yokohama, Japan.

Background

1. Asia is increasingly emerging as a significant source of greenhouse gases (GHG), and the Asia-Pacific region is amongst the most vulnerable to the impacts of climate change. Meaningful engagement by countries and businesses in the region are a crucial part of developing effective, market-based solutions to climate change, consistent with the national economic development objectives of each country.

Climate Change in the Asia-Pacific

2. While there is a significant gap between per capita emissions in Asia and the developed world, recent estimates suggest that Asia accounts for 27% of the world’s total energy-related GHG emissions and this proportion is likely to continue to increase significantly by 2030. As the region continues on its development path, it is predicted to experience a steady rise in its urban population, a sharp increase in energy use and motorization, and continued reliance on fossil fuels and energy-intensive industries. Any attempt to seriously address global climate change challenges cannot avoid the inclusion of effective climate change policies in Asia.

3. According to the Fourth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC) warming of the climate system is unequivocal and without immediate and sustained efforts to reduce GHG emissions negative impacts on the climate will continue to grow worse. While the IPCC report noted fewer climate change observations in Asia than in other regions, this may be due to the fact that the governments and businesses (PPP) need to strengthen their links in the area of research and development.

4. Recognising that there remains an ongoing debate in the scientific community over some of the conclusions of the IPCC report and notwithstanding this oversight, recent reviews of studies suggest that most of the region’s ecosystems are highly vulnerable to climate change. Reduced rainfall in South Asia, if current trends continue, may drive cereal production down 20-30% by 2050; warmer temperatures may degrade coastal ecosystems in South and Southeast Asia; variable rainfall could further damage peat lands in Indonesia and Malaysia, which store large quantities of carbon, and which are already under pressure from land clearing; possible increases in the spread of diseases such as malaria and dengue with warmer temperatures; more extreme climate events such as floods and droughts; and rising sea levels, resulting in resettlements of communities in island-nations.

5. Depending upon one’s analysis of the science, it is clear that there are considerable costs of inaction. However, crafting an effective strategy to cope with climate change is challenging and there are many uncertainties on the impacts and costs of action and inaction. Clearly, short and long term economic costs of reducing GHG must be a central consideration if we are to offer solutions that have practical application. The complexity is further compounded by the need to meet immediate developmental challenges such as the provision of access to energy and expanded infrastructure.

6. Asia is expected to build much of the infrastructure needed to accommodate its rapid economic growth in the near future, and most of the infrastructure is likely to remain for several decades. It is essential to avoid “locking into” outdated carbon-intensive technologies. There is also an urgent need to pursue a developmental path based on low carbon, resource efficient and qualitatively different practices which offer improvements in the quality of life and do not negate the right to development. By aligning climate change actions and sustainable development strategies, Asia can constructively contribute to effective global action. It is not a case of privileging one priority over the other but climate change mitigation must be seen as a key part of sustainable development.

Opportunities in the Asia-Pacific Region

7. Improving energy efficiency (EE) is among the most cost-effective mitigation climate change options available to Asia and holds great potential for the future. For example, increases in GHG emissions between 2000 and 2020 could be halved if only 20% of energy outputs were saved through using current technologies more efficiently in existing industrial and power facilities in Asia. While most of these EE opportunities exist in China and India, the fact that many other countries in Asia have announced ambitious plans to construct energy facilities over the next 20 to 30 years means that if these facilities were equipped with low carbon technologies there could be a dramatic reduction in future emission and mitigation costs.

8. Improving EE is not the only cost-effective GHG mitigation opportunity available to Asia. GHG emission can be reduced by introducing renewable energies (RE), which also offer significant business opportunities in the region. For example, the technical potential for solar photovoltaic (PV) cells across Asia is estimated to be around 860,000 TWh/year. Another reason why this technology is attractive is that many rural areas in Asia are not connected to well-established power grids. These areas could benefit from stand-alone RE applications and “minigrid” applications, which are cost-effective compared with grid extension. Such stand-alone RE applications would also afford poorer communities benefits in adapting to climate change through the creation of economic opportunities and decreasing urban migration.

9. There is growing interest by Asia’s business sector in EE and RE investments. This involvement can be seen in the growing number of Carbon Development Mechanism (CDM) projects. Out of 1035 approved CDM projects as of 1 May 2008, more than half are located in Asia.

10. The opportunities for regional cooperation in the generation and utilization of electricity (based on RE such as hydropower) are also great in Asia. Successful examples of cooperation, such as the trans-boundary power trade agreement between countries of the Greater Mekong region, have the potential to be replicated in other regions, establishing regional grids and entering into long term purchase agreements.

11. Outside the energy sector, non-climate policies such as agriculture, forestry, water, waste and poverty alleviation offer significant opportunities for cost-effective climate mitigation in Asia. In addition, these costs can be even lower when co-benefits are considered such as energy security, reduced energy costs, and reduced impacts of air pollution on health. Transportation, waste management, water, and agriculture sectors proved opportunities to integrate development and climate concerns and generate substantial co-benefits for the environment as well. Additionally, trading in avoided deforestation credits may present significant opportunities to provide sustainable development while preserving biodiversity.

Recommendations

12. Despite the current financial and economic crisis, businesses in Asia remain committed to finding effective solutions to climate change and are supportive of governments’ efforts to secure a new global agreement at the UNFCCC Conference of the Parties in Copenhagen in 2009.

13. From the perspective of businesses in Asia, it is urgent and key priority that governments ensure a smooth post-2012 transition by fulfilling the Bali Action Plan and concluding a new global agreement at the UNFCCC Conference in Copenhagen. This agreement should build on the UNFCCC and the Kyoto Protocol. All the major economies must be party to it, including the United States, China and India, and the agreement needs to take account of Asian developmental priorities.

14. Long-term business strategies and investments necessary to achieve GHG reduction are only possible in the context of a stable, predictable international policy framework.

15. The environmental objectives of the new framework should be met at the lowest possible cost. This is best achieved through the use of market mechanisms that create clear economic value from emission reductions. Governments should be allowed flexibility in applying market-based domestic policies best suited to their own national circumstances. For the framework to be fully market-based at the international level, a common definition and metric for the tradeable carbon commodity in necessary to allow for full trade between all schemes. Businesses must play a key role in these plans.

16. The international framework should respect and preserve the right of national governments to choose their own domestic policy options to address climate change. The new framework should accommodate this diversity by allowing variation in the magnitude and timing of countries’ commitments, within the context of meeting immediate and long-term environmental goals.

17. The new framework must view climate change within the context of the wider development challenge faced by many of the less developed countries in Asia and the world. The framework must be designed to allow for economic growth while meeting its overall international environmental objectives. The framework should provide incentives and support for mitigation efforts in Asia including finance for technology deployment and institutional development, and by providing adaptation assistance to those countries most vulnerable to climate impacts.

18. The framework should promote an international level playing field to support the rapid R&D and deployment of all clean energy and fuel technologies that can lower GHG, and technologies that can help adapt to climate change. In particular, governments in Asia should place EE at the centre of industrial development policy, as it yields quick, tangible environmental and economic benefits. Bringing EE to the fore requires close coordination across relevant government departments and business associations.

19. Business associations in key industrial sectors should enter into agreements with governments to save energy and reduce GHG emissions in exchange for access to low-interest loans to finance EE investments, and be given guarantees of stable policies. High energyconsuming sectors can benefit from the experience of those economies that have adopted voluntary action plans to reinforce sectoral level investments in EE. Business associations should also collect best practices on a regular basis for dissemination by networking with counterpart associations around the world. Establishing “knowledge energy centres” for receiving information on best practices, technologies, finance and training has the potential for widespread dissemination of best business practices. Such institutions should initially be established as public-private partnerships.

20. SMEs face a number of unique challenges in adapting to climate change. These challenges could be addressed through specialised institutions capable of assessing SME technology needs and financing EE improvements. Increased public and private investments in domestic research, as well as the transfer of technologies to industry, will allow SMEs in Asia to develop more appropriate EE technologies. Research investments in limited but key sectors may provide huge cost savings if the technology is proven successful and sold to neighbouring countries. As EE lending is a new business for the financial institutions involved, capacity building for banking staff to understand the unique nature of SMEs and the importance of energy saving is also an urgent need. Greater consideration to SME adaption and constructive solutions for SMEs seeking to address climate change should be a key research issue for national governments.

21. Current arrangements for technology exchange and transfer to developing countries are unsatisfactory, worked out on a case-by-case basis and within the context of each particular project. Strengthening of the human and institutional capacities and improving the operational setting for CDM implementation in Asian countries is an urgent priority. As many CDM projects in Asia are unable to get off the ground due to insufficient financing, innovative options should be explored such as the use of official development assistance and other multi-source funding approaches to cover projects risks, especially in least develop countries (LDC) and middle-income countries.

22. Reducing emissions from land use, and deforestation in particular, has large potential to reduce global emission at a low cost relative to other options, while at the same time protecting biodiversity and promoting sustainable development. Any new international framework should facilitate flows of finance from international market-based mechanisms and other investment sources to greatly accelerate the process of avoiding deforestation.

Conclusion

23. The historic path of development followed by Europe and the US is clearly not sustainable in Asia, with its larger population, resource constraints and the new challenges of climate change. Asian businesses are ready to become involved in the global climate change regime post-2012 in accordance with the following principles.

First, that the post-2012 regime is fair, effective and flexible.

Second, that the region’s adaptive capacity is enhanced.

Third, that business is included in the discussions and seen as a key part of the solution to finding effective, market-based solutions to climate change.

2009

Note: This policy statement was issued on the 31st of May of 2009 during the 23rd CACCI Conference in Yokohama, Japan.

Background

1. Asia is increasingly emerging as a significant source of greenhouse gases (GHG), and the Asia-Pacific region is amongst the most vulnerable to the impacts of climate change. Meaningful engagement by countries and businesses in the region are a crucial part of developing effective, market-based solutions to climate change, consistent with the national economic development objectives of each country.

Climate Change in the Asia-Pacific

2. While there is a significant gap between per capita emissions in Asia and the developed world, recent estimates suggest that Asia accounts for 27% of the world’s total energy-related GHG emissions and this proportion is likely to continue to increase significantly by 2030. As the region continues on its development path, it is predicted to experience a steady rise in its urban population, a sharp increase in energy use and motorization, and continued reliance on fossil fuels and energy-intensive industries. Any attempt to seriously address global climate change challenges cannot avoid the inclusion of effective climate change policies in Asia.

3. According to the Fourth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC) warming of the climate system is unequivocal and without immediate and sustained efforts to reduce GHG emissions negative impacts on the climate will continue to grow worse. While the IPCC report noted fewer climate change observations in Asia than in other regions, this may be due to the fact that the governments and businesses (PPP) need to strengthen their links in the area of research and development.

4. Recognising that there remains an ongoing debate in the scientific community over some of the conclusions of the IPCC report and notwithstanding this oversight, recent reviews of studies suggest that most of the region’s ecosystems are highly vulnerable to climate change. Reduced rainfall in South Asia, if current trends continue, may drive cereal production down 20-30% by 2050; warmer temperatures may degrade coastal ecosystems in South and Southeast Asia; variable rainfall could further damage peat lands in Indonesia and Malaysia, which store large quantities of carbon, and which are already under pressure from land clearing; possible increases in the spread of diseases such as malaria and dengue with warmer temperatures; more extreme climate events such as floods and droughts; and rising sea levels, resulting in resettlements of communities in island-nations.

5. Depending upon one’s analysis of the science, it is clear that there are considerable costs of inaction. However, crafting an effective strategy to cope with climate change is challenging and there are many uncertainties on the impacts and costs of action and inaction. Clearly, short and long term economic costs of reducing GHG must be a central consideration if we are to offer solutions that have practical application. The complexity is further compounded by the need to meet immediate developmental challenges such as the provision of access to energy and expanded infrastructure.

6. Asia is expected to build much of the infrastructure needed to accommodate its rapid economic growth in the near future, and most of the infrastructure is likely to remain for several decades. It is essential to avoid “locking into” outdated carbon-intensive technologies. There is also an urgent need to pursue a developmental path based on low carbon, resource efficient and qualitatively different practices which offer improvements in the quality of life and do not negate the right to development. By aligning climate change actions and sustainable development strategies, Asia can constructively contribute to effective global action. It is not a case of privileging one priority over the other but climate change mitigation must be seen as a key part of sustainable development.

Opportunities in the Asia-Pacific Region

7. Improving energy efficiency (EE) is among the most cost-effective mitigation climate change options available to Asia and holds great potential for the future. For example, increases in GHG emissions between 2000 and 2020 could be halved if only 20% of energy outputs were saved through using current technologies more efficiently in existing industrial and power facilities in Asia. While most of these EE opportunities exist in China and India, the fact that many other countries in Asia have announced ambitious plans to construct energy facilities over the next 20 to 30 years means that if these facilities were equipped with low carbon technologies there could be a dramatic reduction in future emission and mitigation costs.

8. Improving EE is not the only cost-effective GHG mitigation opportunity available to Asia. GHG emission can be reduced by introducing renewable energies (RE), which also offer significant business opportunities in the region. For example, the technical potential for solar photovoltaic (PV) cells across Asia is estimated to be around 860,000 TWh/year. Another reason why this technology is attractive is that many rural areas in Asia are not connected to well-established power grids. These areas could benefit from stand-alone RE applications and “minigrid” applications, which are cost-effective compared with grid extension. Such stand-alone RE applications would also afford poorer communities benefits in adapting to climate change through the creation of economic opportunities and decreasing urban migration.

9. There is growing interest by Asia’s business sector in EE and RE investments. This involvement can be seen in the growing number of Carbon Development Mechanism (CDM) projects. Out of 1035 approved CDM projects as of 1 May 2008, more than half are located in Asia.

10. The opportunities for regional cooperation in the generation and utilization of electricity (based on RE such as hydropower) are also great in Asia. Successful examples of cooperation, such as the trans-boundary power trade agreement between countries of the Greater Mekong region, have the potential to be replicated in other regions, establishing regional grids and entering into long term purchase agreements.

11. Outside the energy sector, non-climate policies such as agriculture, forestry, water, waste and poverty alleviation offer significant opportunities for cost-effective climate mitigation in Asia. In addition, these costs can be even lower when co-benefits are considered such as energy security, reduced energy costs, and reduced impacts of air pollution on health. Transportation, waste management, water, and agriculture sectors proved opportunities to integrate development and climate concerns and generate substantial co-benefits for the environment as well. Additionally, trading in avoided deforestation credits may present significant opportunities to provide sustainable development while preserving biodiversity.

Recommendations

12. Despite the current financial and economic crisis, businesses in Asia remain committed to finding effective solutions to climate change and are supportive of governments’ efforts to secure a new global agreement at the UNFCCC Conference of the Parties in Copenhagen in 2009.

13. From the perspective of businesses in Asia, it is urgent and key priority that governments ensure a smooth post-2012 transition by fulfilling the Bali Action Plan and concluding a new global agreement at the UNFCCC Conference in Copenhagen. This agreement should build on the UNFCCC and the Kyoto Protocol. All the major economies must be party to it, including the United States, China and India, and the agreement needs to take account of Asian developmental priorities.

14. Long-term business strategies and investments necessary to achieve GHG reduction are only possible in the context of a stable, predictable international policy framework.

15. The environmental objectives of the new framework should be met at the lowest possible cost. This is best achieved through the use of market mechanisms that create clear economic value from emission reductions. Governments should be allowed flexibility in applying market-based domestic policies best suited to their own national circumstances. For the framework to be fully market-based at the international level, a common definition and metric for the tradeable carbon commodity in necessary to allow for full trade between all schemes. Businesses must play a key role in these plans.

16. The international framework should respect and preserve the right of national governments to choose their own domestic policy options to address climate change. The new framework should accommodate this diversity by allowing variation in the magnitude and timing of countries’ commitments, within the context of meeting immediate and long-term environmental goals.

17. The new framework must view climate change within the context of the wider development challenge faced by many of the less developed countries in Asia and the world. The framework must be designed to allow for economic growth while meeting its overall international environmental objectives. The framework should provide incentives and support for mitigation efforts in Asia including finance for technology deployment and institutional development, and by providing adaptation assistance to those countries most vulnerable to climate impacts.

18. The framework should promote an international level playing field to support the rapid R&D and deployment of all clean energy and fuel technologies that can lower GHG, and technologies that can help adapt to climate change. In particular, governments in Asia should place EE at the centre of industrial development policy, as it yields quick, tangible environmental and economic benefits. Bringing EE to the fore requires close coordination across relevant government departments and business associations.

19. Business associations in key industrial sectors should enter into agreements with governments to save energy and reduce GHG emissions in exchange for access to low-interest loans to finance EE investments, and be given guarantees of stable policies. High energyconsuming sectors can benefit from the experience of those economies that have adopted voluntary action plans to reinforce sectoral level investments in EE. Business associations should also collect best practices on a regular basis for dissemination by networking with counterpart associations around the world. Establishing “knowledge energy centres” for receiving information on best practices, technologies, finance and training has the potential for widespread dissemination of best business practices. Such institutions should initially be established as public-private partnerships.

20. SMEs face a number of unique challenges in adapting to climate change. These challenges could be addressed through specialised institutions capable of assessing SME technology needs and financing EE improvements. Increased public and private investments in domestic research, as well as the transfer of technologies to industry, will allow SMEs in Asia to develop more appropriate EE technologies. Research investments in limited but key sectors may provide huge cost savings if the technology is proven successful and sold to neighbouring countries. As EE lending is a new business for the financial institutions involved, capacity building for banking staff to understand the unique nature of SMEs and the importance of energy saving is also an urgent need. Greater consideration to SME adaption and constructive solutions for SMEs seeking to address climate change should be a key research issue for national governments.

21. Current arrangements for technology exchange and transfer to developing countries are unsatisfactory, worked out on a case-by-case basis and within the context of each particular project. Strengthening of the human and institutional capacities and improving the operational setting for CDM implementation in Asian countries is an urgent priority. As many CDM projects in Asia are unable to get off the ground due to insufficient financing, innovative options should be explored such as the use of official development assistance and other multi-source funding approaches to cover projects risks, especially in least develop countries (LDC) and middle-income countries.

22. Reducing emissions from land use, and deforestation in particular, has large potential to reduce global emission at a low cost relative to other options, while at the same time protecting biodiversity and promoting sustainable development. Any new international framework should facilitate flows of finance from international market-based mechanisms and other investment sources to greatly accelerate the process of avoiding deforestation.

Conclusion

23. The historic path of development followed by Europe and the US is clearly not sustainable in Asia, with its larger population, resource constraints and the new challenges of climate change. Asian businesses are ready to become involved in the global climate change regime post-2012 in accordance with the following principles.

First, that the post-2012 regime is fair, effective and flexible.

Second, that the region’s adaptive capacity is enhanced.

Third, that business is included in the discussions and seen as a key part of the solution to finding effective, market-based solutions to climate change.